Vocus shares on a high

Telecommunications provider
Vocus Communications
has had a strong run on the Australian Securities Exchange over the past few weeks. Its share price has risen about 15 per cent in April alone.

The Sydney company is best known for selling IP transit services to internet service providers such as iiNet. This involves buying a large amount of cross-country capacity and then selling smaller portions of this with a profitable margin.

With industry experts and analysts increasingly concerned about the future of IP transit, Vocus has begun buying fibre-optic cable networks of its own and investing in data centres.

Microequities said in its March 8 analysis of Vocus that the growth in revenue from IP transit and fibre services was impressive and accelerating compared to the previous half-year.

It also said the company’s maiden dividend of 4¢ a share, fully franked, was a sign of peak investment and could mean more dividend payments to come.

Vocus’s results show revenue for the half-year ending December 31, 2012, reached $30.6 million, up from $21.9 million year on year.

The Microequities report also warned that organic growth in the data centre segment was “lacking in the first half" with market demand levelling off and competitors launching facilities of their own.

As a result, the analyst dropped its rating from a “buy" to a “hold" with a price objective of $1.92 a share.

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Industry experts have a variety of theories for why Vocus’s price has increased so quickly over the past month.

Some have speculated that Vocus is a takeover target and shareholders are investing with the expectation of being bought out.

Others say it is because
Credit Suisse
began covering the telco provider on March 25 with an “outperform" rating and a price target of $2.45 a share.

It’s a theory backed by Vocus chief executive James Spenceley, who told The Australian Financial Review that Credit Suisse’s report grabbed the attention and investment dollars of larger institutional investors.

He also pointed out that other telco stocks, such as Telstra, iiNet and TPG, had all had steadily rising share prices throughout 2013 whereas Vocus had been relatively flat – the inference being that the latest run has been his company getting its turn in the sun.